The KPMG Financial Performance Index replaces our previous D2D model and is based on an improved probability model to benchmark the financial health of ASX companies. We provide our insights into the changing state of corporate health across all ASX sectors, following the end of the reporting season for the six months to December 2021. We have also conducted our KPMG Financial Performance Index analysis as of March 2022 and we observed a decrease in the average Financial Performance Index (i.e. a decline in financial corporate health) between December 2021 and March 2022 from 85.38 to 82.33.
Unsurprisingly, our analysis indicates that the Energy and Aerospace & Defence sectors are the only two sectors that have not experienced a drop in their Financial Performance Index. We are also seeing the highest decline in the Financial Performance Index in Life Sciences Tools and Services, Media and Entertainment and Technology and Telecommunications which we highlight below.
Following the sharp fall in financial performance in early 2020 due to the pandemic, we observed markets recovered strongly over the next 18 months.
However, in our most recent analysis to March 2022, we are starting to see early indicators of distress in the market.
This has been caused by:
- interest and inflationary pressures
- uncertainty caused by Ukraine Russia war
- soaring fuel prices
- ongoing supply chain disruptions
The latest FPI scores indicate the most resilient sectors have been Energy and Aerospace & Defence. The only two sectors that did not experience a decline in their scores.
As we enter a new COVID normal era, some of the sectors that have seen the highest increase in scores during the pandemic have started to show signs of normalisation. This includes Life Sciences Tools & Services, Media & Entertainment and Technology & Telecommunications, all recording a drop of more than 5 percent this quarter.
What we expect to see in the coming months
There are a number of factors that will drive how the next few months play out.
Impact of change in Federal Government
Impact of inflation and pressures around further interest rate hikes both locally and globally
Unfolding of the uncertainty around economic and geopolitical climate globally
Movements of KPMG FPI score across the ASX
About KPMG Financial Performance Index
The KPMG Financial Performance Index is a metric used to measure a company's financial health by it's 'probability to default'. The analysis has been prepared using John Y. Campbell, Jens Hilscher, and Jan Szilagyi's probability to default formula which takes into account financial information and market data. The lower the score, the more likely a company is to default. In contrast, the higher the score, the less likely it is to default. In this analysis, released every six months, we analyse the Financial Performance Index score movements of ASX-listed companies (following the reporting season of full year and half year results) to draw insights into corporate health across the Australian Economy.
The KPMG Financial Performance Index combines both market and financial information to determine a company's relative financial distress levels. KPMG's Restructuring Services believes that combining the two types of information detects deteriorating corporate health more effectively than either source alone. The 11th edition of our bi-annual Financial Performance Index publication focuses on the changing state of corporate health across all ASX sectors for the 6 months to December 2021.
The Distance to Default (D2D) score serves as a useful metric for benchmarking company performance across different industries.
The Distance to Default score is a useful metric for benchmarking company performance.
KPMG Financial Performance Index
Meet the team
Please contact us if you would like us to present our insights to your team.